Retail Banks Tipped To Drive The Prepaid Market

24th February 2004

Prepaid transactions in the US, 90 per cent of which are on plastic cards, will grow by 30 per cent per year through 2010 as paper vouchers move to card-based programmes, according to solutions firm, PrePay Technologies.

In the UK, where chip & PIN migration will take priority through 2004, the prepaid sector should see growth of between 25 per cent to 30 per cent per year to the end of the decade. From 2005 onwards, however, prepaid products such as prepaid wireless, gift or lunch vouchers will gain traction with retailers wanting to extend the functionality of their POS systems, and develop new revenue streams.

Retail, not wholesale, banks will drive growth in the prepaid market, given its niche focus, argues Philippe Dufour, CEO of PrePay Technologies. As prepaid transactions are more complex than card transactions, Dufour warns, "front-end requirements (for prepaid) are very different from those for debit or credit" and prepay is unlikely to reach standardization as quickly. Most "banks want to get into this market but realize that their culture, cost and shareholding structure pre-empt them" from doing so, Dufour continues, as the economics of prepaid card programmes do not always work with banks' standard financial businesses.

Card-issuing banks will "find that pre-pay addresses different needs from their traditional customers" Dufour says, but can more easily adapt existing back-office functions to support prepaid products. Gift cards dominate stored-value programmes in the retail sector, while universal bankcards, lunch vouchers, cell phones and transportation are identified as emerging, horizontal prepaid (payment) markets. Since the prepaid industry is comprised of niche markets, Dufour adds, flexibility and creativity is central to devising solutions that can be tailored to suit disparate business models and customized to fit where necessary.